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Qingdao container port in Shandong province. China’s trade surplus grew in 2015 while overall trade fell. Photograph: Yu Fangping/EPA

Chinese shares fall 2.4% despite better than expected trade data

WT24 Desk

China’s stock market fell more than 2% on Wednesday after officials played down the significance of better-than-expected trade figures for December, saying exports could sink further before they find a floor, The Guardian reports.   China’s trade volume fell 7% in 2015 compared with the previous year, Chinese customs said, as slowing growth in the world’s second largest economy and plunging commodity prices took their toll.

A slump in imports by 7.6% year on year to $164bn (£114bn) accounted for the largest drop in trade, while exports were down 1.4% from a year earlier to $224bn, an improvement over the previous month’s 6.8% contraction.  For the full year, exports were off 2.8% at $2.3tn and imports were down 14.1% at $1.7tn.

The numbers surprised the markets, where economists had forecasted a much weaker reading. Traders were also cheered when the numbers were translated into the weakening local currency, the yuan, which showed exports reached a record value in December, up 2% on the previous year.  They appeared to offset gloomy predictions of a stock market rout in 2016 made by several investment bank analysts, including RBS’s credit chief, Andrew Roberts.

Battered in recent days by a flurry of weak economic forecasts, China’s stock market rallied almost 20 points initially, but comments by officials that weak demand for Chinese goods will continue to hurt the country’s economy in 2016 sent the Shanghai composite down 2.4% by the end of the trading period to 2,949.

Some economists argued that the figures showed trade with China was beginning to stabilise after a year of contraction. Daniel Martin at Capital Economics said: “China’s trade data support our view that, despite the turmoil in Chinese financial markets, there has not been a major deterioration in its economy in recent months.

“Meanwhile, another large trade surplus last month provides a cushion for the People’s Bank in the face of soaring capital outflows.”  Tom Rafferty of the Economist Intelligence Unit, said: “China’s improved trade data in December will probably act to reassure global investors unnerved by the recent volatility in the country’s financial and foreign-exchange markets.

“The data is in line with other indicators that suggest China’s economy is stabilising on the back of sustained stimulus measures.”  The country’s global trade surplus widened by 21% to $60bn in December. Over the whole year it was $594bn. The trade surplus in December with the EU, its biggest trading partner, swelled 36.8% to $15.6bn. The surplus with the US contracted 6% to $19.4bn.

Some analysts questioned the trade figures, saying they were suspiciously buoyant after an unexplained 10% surge in exports to Hong Kong, meaning that the former UK colony imported more from mainland China than the US.

Iris Pang, a senior economist at Natixis SA in Hong Kong, told Bloomberg the increase in exports to Hong Kong and China’s imports from the city probably indicated “fake invoicing”. The invoicing of China trade should be larger in December because of the wider gap between the onshore yuan and the offshore yuan traded in Hong Kong, she said.

Albert Edwards, an economist at Société Générale, who has predicted that global stock markets will tumble this year, said moves by the Chinese authorities to devalue the yuan to boost exports would have profound consequences for the global economy.  He said that despite a large trade surplus, huge capital flight from China as savers take their cash out of the country was forcing regulators’ hand.

“I have always thought that in order to revive a spluttering Chinese economy, the authorities would have to devalue, but not just because an overvalued exchange rate was squeezing their manufacturing sector.

“Instead I felt that an overvalued exchange rate had steadily undermined competitiveness to the point that it had undermined the balance of payments. This was compounded last year by an accelerated capital outflow as anti-corruption measures intensified, and an unprecedented unwinding of dollar-denominated borrowings by Chinese corporates. All these factors have combined to take the Chinese balance of payments into deep deficit.”

Optimists also pointed to a rise in Chinese crude imports to a record 7.82m barrels in December, up more than 21% from November, as a reason to believe that China’s ailing manufacturing sector was gearing up for better days.  It appeared, however, that the world’s second-biggest oil consumer was simply taking advantage of the oil price rout to stock reserves and increase exports of refined products.

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